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From LRC blog, Feb. 2004

Long on Anarchy

Followup to this post: Latest pretentious terms from today’s Slate Political Gabfest and Culture Gabfest #40 (feel free to email me suggestions or leave them in the comments to the main page):

• annus horribilis [CG#40]
• anodyne [PG7-17-09, Emily]
• chanteuse [CG#40]
• gonzo [CG#40-all 3 hosts]
• milquetoast [PG7-17-09,guest host Chris Beam]
• patrimony [CG#40]
• spanner (for wrench) [PG7-17-09, Dickerson]
• sussed out [CG#40]

Libertarian Papers, Vol. 1 (2009), Art. No. 31: “The Ethics of US Monetary Policy in Response to the Financial Crisis of 2007-2009,” by George Bragues

Abstract: Since the financial crisis first erupted in the summer of 2007, the US Federal Reserve has sought to contain negative spillovers into the real economy by dramatically loosening monetary policy. Initially, this was done by lowering its key lending rates, but as the crisis has worsened, and rates have approached closer to zero, it has resorted to expanding its balance sheet in a historically unprecedented fashion. The Fed’s total assets have more than doubled to nearly $2 trillion since the summer of 2007.

Much of the debate surrounding the wisdom of this extraordinary increase in the production of money has revolved around its expediency–in other words, will it actually work to rescue the economy? Very little has been said, at least explicitly, about whether it is the morally right thing to do.

This paper seeks to fill this gap by providing a moral analysis of the Fed’s response to the financial crisis. For this purpose, we apply Aristotelian virtue theory, Lockean natural rights philosophy, Kantian deontology, and Benthamite utilitarianism. The idea is that if a consensus, or a strong majority, can be reached from differing philosophic assumptions and starting points, then the resulting judgment ought to be compelling for all neutral observers. On the basis that the Fed’s efforts are likely to result in a marked rise in inflation, we argue that every one of these four moral theories ultimately renders a negative judgment. As such, we conclude that the Fed is pursuing an immoral course.

Without Borders is an interesting fee-based monthly newsletter subtitled “Dispatches for Intellectual Adventurers, Investors and Speculators” published by one Fitzroy McLean, its “Chief Bon Vivant and Speculator.” The newsletter “is one part finance and investment, one part geopolitics and one part globalist libertarian philosophy.”  McLean tells me the newsletter is an “account of how I spend my time and allocate my capital with a healthy dose of capitalist and libertarian rhetoric.”

McLean is an interesting character–a West Point graduate and former Army Ranger and Special Operations Officer who served throughout Europe, Africa, and the Middle East, before being recruited into the CIA’s Clandestine Service where he earned his living running covert and paramilitary operations. But now he’s an anti-government “Libertarian with Anarchist and Hedonist tendencies.” Check it out.

I am skeptical of the technological singularity ever happening–or happening soon, as people like Kurzweil predict–but it’s possible. And, something less is possible too–a substantial increase in the effect of technolgy on productivity–perhaps enough to counteract the bust. See the figure below: this is a sketch of how I have long pictured the business cycle.

In this chart, imagine a free market emerging at the left axis. GDP increases, with ups and downs, before a central bank is formed. When the central bank with fractional reserve banking is introduced, it inflates the supply of money and credit which sets in motion the first boom, and the recurring boom-bust cycle described by Mises and Hayek. The Austrian insight is that not only does this hurt some and harm some (by redistribution or uncertainty effects), but that it also destroys wealth (because of malinvestment). This means that even if there is an underlying average growing GDP (the lower dashed line)—that is, the GDP increases over time despite the cycle—it is less than it would have been if the cycle had never been imposed (that’s the upper dashed line). The cycle in effect exerts a drag on growth; or it reduces the slope of the rate of increase in GDP over time, in addition to making it more volatile and causing redistribution due to inflationary effects.

This point is somewhat addressed in this discussion Every Investment Projection You’ve Seen Is Wrong: The Truth About Compounding, which explains why compounding produces lower returns than would be calculated if you assume a given rate of grown, because the growth is never smooth: any volatility around the average rate of growth reduces the effect of compounding that we would see for the same average but constant rate of growth. I believe something similar happens with the business cycle. Because it causes malinvestment, it results in a lower average annual rate of growth because the malinvestments reduce productivity. But in addition, the increased volatility of the (already lower) average annual productivity growth means the net results—the “compounding” effect—of productivity increases are reduced for this reason as well.

Now see the right elbow of the curve–if some super-advances in technology, or even a technological singularity, occurs, so that it boosts the average rate of growth of productivity and GDP enough, it is conceivable that the “down” or bust part of the cycle would be relative only. We are still worse off than we would have been, but in this case a “recession” would be a period of, say, 4% annual GDP growth instead of, say, 20%.

I am not predicting this. I am only saying it’s an effect. Even on the middle part of the curve, which is what we appear to have had from about the 1910s to the 1970s or so, the average upward growth of GDP ameliorates the bust because it is relative to that general upward trend (which is partly due to increasing technological advances). As a crude example, if we experience a bust, while at the same time the price of computers and electronic devices keeps falling and their qualities are rapidly improving due to technological progress, then consumers experience less of a bust than they would otherwise. It’s just an empirical question of the comparative downward slope of the bust, and the upward average slope of GDP grown. They could cancel out, or one could dominate the other. Up till now the bust of course always dominates, and I don’t expect it to reverse, but it could, or could be signfiicantly ameliorated.

Heroic! Here it is, from March 7, 2003:

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An Open Letter to the Peace Movement

[by Roderick Long]

Dear Peace Activists:

All honour to you. In your opposition to the United States’ impending war on Iraq, you represent a welcome voice for sanity and civilisation, lifted up against the incessant baying of the dogs of war.

But I want to urge you to follow the logic of your position just a bit further.

Much has been said, and eloquently so, about the need, in dealings between nation and nation, to choose persuasion over violence whenever possible. Hear, hear!

But why this qualification: between nation and nation?

If persuasion is preferable to violence between nations, must it not also be preferable to violence within nations?

Suppose my neighbour runs a business out of his home, and I’d rather he didn’t. If I call the zoning board and ask them to shut his business down by force, am I acting like a peace activist? Or am I acting like George Bush?

Suppose I go to the polls and vote to maintain or increase income taxation, or gun control, or mandatory licensing, or compulsory education. Am I not calling upon the state to invade people’s lives and properties? To impose my will, by legalised force, on those who have done me no harm? To choose violence over persuasion? Am I acting like a peace activist, or am I acting like George Bush?

As Ludwig von Mises writes:

It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

To the extent that government initiates force against its people – and every government qua government must do so, since a government that maintained neither coercive taxation nor a coercive territorial monopoly of authority would no longer be a government, but something a good deal more wholesome – every government is waging a war of aggression against its own people. A consistent peace activist must be an anarchist.

It may be objected that in democratic countries, the government represents the will of the citizens; since the citizens are understood to consent to the government’s actions, those actions cannot count as “aggression” against the citizenry. Volenti non fit injuria.

The notion that voting counts in any meaningful sense as “consent” was subjected to devastating criticisms in the 19th century by the English classical liberal Herbert Spencer, in his essay The Right to Ignore the State, as well as by the American abolitionist Lysander Spooner, in his pamphlet No Treason: The Constitution of No Authority. Both works are available online; those tempted to regard majority rule as a form of self-government are invited to consult them.

As peace activists, we understand that aggressive warfare between nations is neither moral nor practical. If violence is to be employed, it must be defensive in nature, and it must be the last resort, not the first. Why would this principle hold good at the international level, but fail at the intranational?

Fellow peace activists: I invite you to join me in the work of the Molinari Institute. The state is the cause and sustainer of war, because the state by its nature is warfare incarnate. Its imperialist aggression beyond its borders is simply an extension of its inherent modus operandi within its borders. There is a peaceful, consensual alternative: Market Anarchism. The object of the Molinari Institute is to see that alternative implemented.

If you love peace, work for anarchy.

Yours in liberty,

Roderick T. Long, President
Molinari Institute

Just published: Libertarian Papers, Vol. 1 (2009), Art. No. 30: “Mercantilism, Corporations, and Liberty: The Fallacies of ‘Lochnerian’ Antitrust,” by James Rolph Edwards

Abstract: Progressive legal theorist Daniel Crane has argued that libertarians who believe that monopoly results from government intervention should accept antitrust law because the monopoly problem is a result of state government passage of General Incorporation Acts after the Civil War. The resulting corporate consolidation and control of industry necessitated federal antitrust law as a corrective. Crane has all of this wrong. State permission for incorporation was an ancient tool of mercantile grants of monopoly still in practice by state legislatures in the early 19th century, and the General Incorporation Acts were a major expression of a successful Jacksonian antimonopoly policy.

To be added to my favorite quotes collection:

“If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another.” —Adam Smith

“It’s so wonderful to see a great, new, crucial achievement which is not mine!” —Ayn Rand

Update: See also

• The Libertarian Case for Gay Marriage
• Is Gay Marriage a Constitutional Right?
• Libertarian Answer Man: Promise and Marriage Contracts

In Marriage’s shifting status…and gay marriage today, Wendy McElroy posts an original essay on gay marriage by Jim Peron which “We may wish to return marriage to its original, private status, but until that happens, basic principles of justice require that gay couples have equal access to the flawed state system.” Wendy’s view is:

I am among those who argue for privatization rather than the inclusion of more people within the current statist framework of marriage but I see the logic and good intentions of those who wish to have gay marriage legally recognized. This is an honest disagreement between people who wish to protect human rights and dignity… In the process of exploring this disagreement, Jim raises excellent points in a fascinating essay.

My own view is here: The Libertarian Case for Gay Marriage.

Update: See Are anti-IP patent attorneys hypocrites?, collecting various posts about this topic.

***

Following up on An Anti-Patent Patent Attorney? Oh my Gawd!, I was chatting with a friend about the following. I’ve argued that merely filing for patents is not inherently unlibertarian since patents, like guns, have both legitimate and illegitimate uses. The former being defensive use to ward off patent infringement suits or to countersue someone who sues you first. Still, there’s an … icky … feeling involved in getting a patent. The following may be a bit inside baseball for patent lawyers but I thought revealing some of the innards of how the process works may be of interest to some readers.

Laymen may not be aware of this but patent “prosecution” work (as filing the patent and interacting with the patent office to get it allowed, is called) is fairly fungible, low-dollar work, compared to other types of IP. To prepare and file a patent application, the patent attorney might charge anywhere from $7k to $15k or more. But patent litigation is much more lucrative (or can be), since the lawyers can get a cut of, or be paid based on the hopes of, multil-million or billion dollar judgments.

Patent lawyers also are often called on to prepare patent opinions. The good thing about these is they are more lucrative than patent prosecution—the attorney can often charge a good $25k or more to prepare one—and they can be completely libertarian. The typical usage is this. Company A is minding its own business and then becomes aware of a patent owned by company B that they are accused of, or otherwise concerned that they might be, infringing by selling a certain product that appears to be described by the claims in the patent. Quite often the issue is not clear cut—the patent language is ambiguous and there are a variety of possible legal defenses one might have, that might or might not succeed at trial. If the risk seems high and the product is not important, the company may (a) design around the patent—that is, modify the product’s design so that it doesn’t infringe the patent; (b) stop making the product; (c) approach the patentee for a possible license. If the risk is low or the product is essential, sometimes there is option (d): keep making the product and pray that you are not sued (and one reason you might not be sued is if you hold your own patents that the other company might be infringing). Option (a), designing around, sometimes employs an opinion of an attorney that the new design doesn’t infringe, or relies on input from patent attorneys as to how to increase the chance that the new design doesn’t infringe.

But when option (d) is invoked, then here is the dilemma companies face. If you go to trial, and lose, you may have to pay damages for past infringement—some kind of “reasonable royalty”; and the patentee may be able to get an injunction to force you to stop making the product going forward (which may result in a license with a royalty provision). However, the patent statute also provides for enhanced damages—”the court may increase the damages up to three times the amount found or assessed”, in certain cases—which the courts have found to be cases of “willful infringement”.

Now, the courts hold that if you get an unbiased opinion from a professional that says you do not infringe the patent, and you rely on this, then even if you lose at trial (and the attorney turns out to have been wrong), then you have a good argument that, although (it turns out) you were infringing, it was not willful since you “sincerely” believed (hoped) that you were not infringing, because you were “relying” on an attorney’s opinion.

Thus, when patent litigation is threatened or a possibility, the potential infringer will often pay patent attorneys tens of thousands of dollars to exhaustively research the problem patent(s), and to prepare an opinion that “concludes that the patent is invalid, unenforceable, and/or not infringed.” (One of the most recent cases on this is the Seagate case (discussed here), which reduces but does not eliminate the need for such opinions.)

In other words, potential patent victims are so desperate to keep selling their product, that they in effect pay tens of thousands of dollars to get a patent opinion that buys them “insurance”—it basically reduces the risk of treble damages being awarded in the event they lose at trial.

Anyway—I can’t see any possible libertarian argument that preparing such a purely defensive opinion is unlibertarian. Indeed, it’s heroic, much like income tax defense or criminal defense work.

[Against Monopoly cross-post]

Update: Related posts: Advice for Prospective Libertarian Law Students; Are anti-IP patent attorneys hypocrites?; An Anti-Patent Patent Attorney? Oh my Gawd!; The Morality of Acquiring and Enforcing Patents; A collection of recent blogs about patent hypocrisy and “success” stories.

Latest Libertarian Papers article: 29. “The Rocky Road to Paradise: Why Economic Liberalization is Interrupted” by David Barker

Abstract: Despite evidence that free market policies improve overall welfare, much of the world is making little progress in reducing state economic controls. Short-term transition costs may be the reason. A simple model demonstrates that it may be rational to weight these costs more heavily than the long-term bene?ts of economic freedom.